The Rich Can't Get Richer Forever
newyorker.com
newyorker.com
The biggest issue I have with the article is that it ignores the geopolitical trends that were actual checks on inequality historically. Inequality typically only decreases in the face of an existential threat to the wealthy; when the US passed 90% marginal tax rates, it was to fund a war where the ability of the wealthy to remain in power at all was in question. Getting pensions and many other social democratic policies which benefit the poor and middle class, in many countries in the world, often required blood instead of the free market.
This is the real equaliser, it is not tax and it's not the market. In all honesty even in their example, the 1% in the US is not stable .. it's more like a game of chair, if you blink you can loose your seat.
For proof, just consider that globalization started way before Free Software.
Exactly, this phenomenon is called the "Elephant Curve": https://www.brookings.edu/research/whats-happening-to-the-wo...
Which took hold because workers were being abused. Various communist revolutions in history, and all the related violence, can be considered in part blood shed towards improving the conditions for the working class.
The issue is that nations have a duty to their own citizens, good luck telling an entire generation that they need to make sacrifices for others while the rich keep getting richer.
As for why Scandinavia and Germany have managed to keep inequality at bay, they've got very robust welfare states and strong labour unions.
They haven't deteriorated as fast as the US and UK but the trend is clear.
It's worth noting that both Scandinavia and Germany are far less economically libertarian than most Americans would palate too
Also, crime rises/falls depending on economic outcomes for the lower segment of the population. If there's too many immigrants unable to find jobs or integrate, crime rises which can cause discontent.
Not really, because some or all of he income of these immigrants are taxed and spent domestically.
I do understand your logic, but my argument is while offshore money is spent outside the borders, immigrants spend most of their income domestically and pay their taxes, which is a too big difference to put it into the same category.
Long term, they bring their family over, raise families in the host country, get better jobs and integrate (culturally and economically) so the offshoring effect disappears.
The main problem is, especially concerning the rise of populism, when the short term effects become too severe, the long term outcomes don't matter to those who have been affected by lowering wages during their working years. And it's not every industry, perhaps not even a majority who are affected, but for those who are, they feel as though their social contract has been broken, and they vote for whoever promises to fix it.
This forum is mostly IT workers. For awhile, wages in this sector in the US were suppressed by things like cartels and H1B visas, and subsequently action was taken to enforce proper employment laws and increase the wage requirements for H1Bs. That was 1 sector, not even that much immigration, and wages showed a noticeable dip. People here were outraged too, but it was before the Trump years so the whole conversation had a different tone.
Anyhow, I don't think immigration is bad, but there are pros and cons, different effects on the economy and people, and these definitely need to be accounted for.
At least to me, "f*g over someone" would imply malicious intent - these economic agents are neither benevolent nor malicious - they simply don't care. In a slightly wider context, this is exactly why an AGI is considered dangerous.
In fact mainstream neoliberal economic theory has always been about rationalising political actions that operate against the interests of most of the population.
The origination and promotion of these economic myths is calculated, deliberate, and absolutely malicious in intent. The Chicago School didn't just happen - it was created, promoted, funded and nurtured as a dogmatic political movement opposed to Keynesianism.
Individual actors may not care, but that's exactly the problem -they've been incentivised not to.
Under a more humane system, they could just as easily be incentivised towards other actions.
How is that reducing inequality worldwide situation? Those foreign workers may be closer to the middle classes in rich nations, but the rich are getting further ahead
Actually inequality (of percentage of the world's resources amassed) between poor and rich countries has increased as well. The get richer compared to their own past, but less than the world is getting richer overall.
But that's a red-herring. Even if inequality among countries was lessening, that could just be part of poor countries getting richer, building infrastructure and so on.
That wouldn't mean the richer countries having rising inequality and poverty is is not a problem, nor we should view it like "inequality in the west is being balanced as less inequality in other countries".
That's an interesting claim to make. China, India, Eastern europe... Africa is having a boom too. Ask any westerner who used to go on dirt cheap super long vacations. The today's gap is miniscule compared to the glorious days.
Apparently true too. E.g:
I'm talking about GDP PPP grouped by country. Coming from eastern european perspective, the difference is much smaller than it was in 90s or 70s. Both in how close we're to western europe and us and how China or India or Africa got closer to us.
Simpson Paradox. Inequality inside of countries can increase while the average inequality across all countries goes down.
Also: The change in world inequality is all about China.
Which, also, is what really matters most. Democracy and the rule of law both start to break down when a few people have orders of magnitude more money than the median for that country; they can use their wealth to influence their own government in a way that the masses of that country cannot. That the gap between countries might have narrowed, is no help, if the inequality of both rich and poor countries goes up.
In addition, many countries have much lower taxes on capital gains compared to other types of income, which is another factor that favors further concentration of money with those people that already have a lot of money.
[0] this may have been a couple decades ago, apply inflation but it was more or less in that order of magnitude.
This doesn't work because the rich can opt to do a lot of different things with their money including hide or invest it overseas.
Taking the money of the rich and using it to directly improve the lot of the less fortunate has been tried and actually works as one would expect.
Meanwhile a 70 year old seeing their BTL property appreciate by £45k a year due to crossrail (paid for out of income tax the 20 year old is paying) keeps 87% (£39,060)
One just needs to look at the land stratification California has been going through to understand why. Most of the issues they face are a result of the wealthy doing everything in their power to prevent land from being upzoned or rebuilt because that devalues their property or ruins their view.
In this case there's no growth happening despite a desperate need for growth because the wealthy don't want it.
Figure out the median property value, make the first 50% of that tax free. Then the next 50% is taxed at the previous rates. Then tax values above that enough to make up for it.
Could apply the same idea to land value taxes too.
The value is determined in a voluntary exchange, such as a sale, and results of sales of similar property serve only as approximations.
Same problem is with the land value tax. It's like trying to buy / sell your property every time you do taxes.
There is a known mechanism to limit attempts do show an excessively low value. Back in the day, the British Empire's customs reserved the right to immediately buy the entire freight of a merchant ship for the value declared at customs. That could work with land and even realty, too, but would be much more disruptive.
Plenty of jurisdictions do market-value property taxes by using market data and creating models to approximate the rest.
It’s never perfect, but the line in the sand must be drawn.
Other taxes have the same approximation issues. Income taxes don’t really tax all the value I provide. Any social person barters plenty of value that goes untaxed, but technically should be.
Can you elaborate on this/help me out with what to google for? I've never thought of this but it's actually a brilliant idea - would love to read more about it!
If the farmer is struggling because of property taxes driven by their own increased property value... sounds like a good position to be in.
As for passing them on, that argument could be made for all taxes. If true, at least this structure would lower rents for low-value dwelling occupants and increase for those in more luxurious situations.
And if so, how does this get applied to corporations and REITs? Do they get taxed out of existence, or do their holdings get apportioned to individual shareholders and included in their personal portfolio, so that individual progressive schedules are applied to each portion?
It seems unlikely to me that you can construct a sound set of rules for this that are workable (no glaring loopholes) and appreciably different from a progressive wealth tax, which might be much easier to formulate...
I don't believe it will ever happen. There's too much inertia and rot in what we have now, and nowhere to go to build something new.
The way inheritance should be solved is by not allowing a single person to inherit more than 50% of the total net worth.
With the wealth distribution curve we have today, I don't think your proposed solution goes anywhere near far enough to stop the consolidation of wealth in the hands of a very few who hoard it and use it to buy governments. But maybe your definition of "solved" in this context is not the same as mine.
In turn, fewer people in this class are investing in the future or hold stock, which means they feel little investment in the world. Instead of feeling like part-owners of the country, they feel like wage slaves with little power to escape the bondage of debt.
On top of this, it feels like just barely getting by with these things requires more time and effort than it used to. People are working more part-time jobs and both parents of a family need to work.
Taxing rich people does little to make these very real problems go away.
If you argue that insurance/college/rent etc would scale to accommodate the larger budgets the lower classes would suddenly have, then obviously some other legislation is needed there though.
I wonder how much of that was counting blacks in the South as people (after slavery was ended). During the post Civil War era, they typically made half as much as whites for the same work.
I read a history book years ago which, unfortunately, I can't determine the name of. The current narrative is that minimum wage laws are oppressive racist nastiness, but this book asserted that the Federal minimum wage was intended to put a stop to the practice of paying blacks half as much as whites in the Deep South so as to bring the South more in line with the rest of the nation generally.
While some higher skilled and higher priced workers are needed, not all of them need that level of expertise and it prices out people trying to enter into a field where the on the job experience would be invaluable. If you can produce 2/3rs of the value on lower skill tasks but at half the price, it is better to hire two of you than one higher skilled individual. Plus it allowed you to build skills for the next job. These minority workers were seen as a social (racism) and economic threat. There were literally white-only unions that supported these policies.
The infamous Cabrini Green chicago housing project was a more recent example of this. It was mostly poor black families, and many thought it would be a boon for local black employment. In reality, white union workers were bused it at huge expense to fill the roles.
https://www.forbes.com/sites/carriesheffield/2014/04/29/on-t...
https://mises.org/wire/racist-history-minimum-wage-laws
https://reason.com/2019/01/21/washington-forced-segregation/
The book was very well documented. At the time, I had no idea it said the opposite of the usual framing or might have made more effort to remember the title and author.
The book suggested the Federal policy initially failed in its goal because racist whites in the South simply fired blacks rather than "pay them a white man's wage." The start of WW2 helped it eventually succeed, but there was also a fairly widespread exodus of blacks from the rural South to urban centers elsewhere in the US as a personal means to solve such problems on an individual basis.
I was homeless for several years. During that time, I did piece work. Initially, it was common for my hourly earnings to be well below minimum wage, like as little as $1.25 an hour. Over time, this changed.
So I am actually a proponent of the idea that we need to make it possible for people to work for less than minimum wage so they have the ability to better than themselves. I don't think it's a good idea to allow wage work per se to be that low because it easily becomes an inescapable personal hell. But we do need to design work opportunities that can pay less than minimum wage if it takes you a long time to complete it, but also has the ability to become a more middle class income if you get good at and thus get faster or otherwise qualify for similar work that nonetheless pays better.
$500 - Bank error in your favour and you move on with your life.
$5,000 - Maybe buy you some breathing space to look for a job you prefer. Pay off a debt?
$50,000 - Maybe you might quit and retrain in a new career.
$500,000 - Maybe you'd start looking to see whether you could jack it all in and live off investments.
$5,000,000 - Start that business you'd always fancied, without fear of failure. Or just invest and kick back.
$50,000,000 - Makes more sense to invest it, and do whatever you want with the interest.
Yes, I've just made up those sums and outcomes - but I think it's interesting how we look at "sizes of money" and would all do wildly different things depending on the size.
e.g. If you got 10x$50,000 you're not going to retrain ten times. But give $50,000 to ten people and ten people might.
Or 10x$5,000,000 and you might get 10 new businesses - but $50,000,000 is unlikely to create any viable ones.
I am conflicted about this way of trying to solve the problem.
Also, this is assuming the tax money gets used efficiently and not to the advantage of the top earners.
When a father who back in the day bought a house in Silicon Valley for $100k passes it to his child, the child does not pay a ton (or likely anything at all) from the few million of current value of the house.
When a parent passes a $10B enterprie to children, the children have to split and sell a part of the business to pay the inheritance tax. The children still retain a successful multi-billion business, but its market share becomes smaller, increasing the competition on the market.
The middle class is not subject to Federal Estate taxes. The exemptions are $11MM and $22MM if the estate first passed to a spouse. Neither of those are middle class amounts of wealth.
Sure, it might be satisfying to get rid of, but it only causes the wound to bleed more, a new scab will form, and getting rid of it isn't what you actually need, you need the wound to heal. If the wound heals, the scab will fall off, but picking at it only makes the healing time longer.
If one policy results in half the amount of avoidance as another policy, this is a very meaningful difference.
It's really important to not overlook this.
That's what progressive income tax does as well. Not all that unexpected the middle class is shrinking.
Is this a joke? And slavery is mentioned indirectly, in passing, only once? You cannot discuss equality in America without discussing slavery. Not to mention the dispossession of native Americans.
Then look at how the Romans failed during the time of the Gracci and the US succeeded during the 1930s - 65.
There’s a whole chapter devoted to this in the Durants’ Lessons of History.
Is there a non govt or non politician dependent way of solving inequality? facebook connected the world not govt or politicians. Google made knowledge and information available to the whole world not a politician or a govt. (I understand there are down sides to these companies products but so is there to govts/politicians)
Even as a thought experiment I would like to see some ideas here to solve inequality in way that just keeps the politician and govt out of it (cos all they do is make the common people foolishly quarrel against each other while they retain power and do what they think is right)
The guillotine?
No, I mean seriously, if you rule out the political process, you just leave violence as a way to change things. It is to prevent that that government and then democracy were invented. If you consider this process broken, you are screwed and need to revolt.
Concentration of wealth is a well-known and well-accepted side effect of market economies. This is supposed to be offset by income taxes and wealth taxes.
The economics does not have incentive laid out to smoothen inequalities. If you rule out the political process, what do you have left?
My background is as a homeschooling mom of twice exceptional kids. I'm also twice exceptional.
I think the rise in inequality is partly due to higher survival rates of people with, for example, incurable genetic disorders and other serious problems. We also have a lot of people surviving serious health crises that would have simply killed them in a previous era, but it means they are now permanently impaired and less productive.
Personal handicaps are a significant risk factor for homelessness. Being homeless typically means you are among the poorest of the poor, so it works well as a proxy for factors impacting extreme inequality.
I run a number of websites trying to address such issues. I'm also involved to done degree with local non profits.
I think it can be done, but, like anything, "ideas are cheap, implementation is hard." (Or whatever that saying is on HN about how ideas alone don't make for successful startups.)
'Scaling large organizations' is a hard problem.
If you think the existing politicians are worthless then your Facebook post should be about replacing them with ones that are worth something. Our political process is the only way we set the ground rules for this game and if someone else sets the rules you can't win if they don't want to let you.
You have already given up the only actual power you have. Take it back.
Unfortunately, I just don't think every problem can be solved through that lens. Companies can earn money by creating something of value, or by making something cheaper. Facebook connecting the world together was creating new value, and Google making information easily/freely available was a drastic reduction in the cost of discovering information. Both of those services created value. The problem of economic inequality is not a problem of needing more value, it's a problem of poor distribution of value. That's a problem companies are not good at solving. Companies are usually terrible at solving those problems.
The other side I see you going for is that the government seems unreliable, so you'd rather there was a solution -- ideally one that's scalable -- that didn't rely on forces outside of your control. My best guess would be volunteer work and activism, which doesn't have to go through the government. Supporting local businesses and encouraging your neighbors to do so helps your local economy. Food banks and homeless shelters are great, and so are public libraries. Big brother/sister programs, little league sports coaching, volunteering at after school programs -- all good ways to help.
The closest example I can think of is Kiva. They provide micro loans for new businesses that cannot access traditional banking services. For us the lender, it is temporary charity as we get no interest, but Kiva field agents collect interest.
Inequality is produced by engines of value creation whose fruits accrue more to some than others. The simplest way to reduce it is to break them.
For example, if I as a parent want to save up and give up my immediate gratification from spending that money so my children have a head start or even a luxurious cushion, what’s wrong with that? That’s me spending my utility the way I want.
With property taxes, ownership turns into renting - you never really own anything and even things you already bought can have their ownership eroded into nothing by subsequent policy.
That's just it, we never really own anything anyway.
If the rich are richer than us, it's because we gave our wealth to them, or rather let them take it.
To he who has much, more will be given...
This seems disconnected from reality. It is more accurate to say that they earned it through voluntary two party transactions.
Think carefully what voluntary means. Many, if not most, people, in their daily lives, don't have much volition.
Say your neighbour falls on hard times, and instead of just helping him, you offer to buy some of his land, or his watch, or whatever at a disadvantageous price. Or you lend him money at unfavourable terms.
There are real life businesses that operate today, pawn shops, cheque cashing places, that grow wealthy on the poor.
The way to avoid giving what little wealth we have to the man, means to rely on one's community, but in North America that is being eroded more and more.
Most people are only successful because of their inheritance.
If you would be forbidden to give your kids more than a million that would solve that problem pretty well, I guess.
Also, due to inflation, millionaire is not what it used to be.
I always read about so believed "self-made" just to find out that they had rich or at least wealthy parents.
Ownership will exist for as long as there's support in governance and law for it. If ownership doesn't deliver enough benefit for the majority in society, then expect society to alter the terms of the bargain.
What’s more, in many cases—like Egyptian pharaohs—the wealth was only inherited and not earned by way of creating anything except through maybe war and conquest.
The difference in perspective seems fundamental. Wonder if there’s been more vigorous research on the subject.
Keeping your kid safe from pretty much anything you went through doesn't require 80 billion dollars.
I think your comment is more about the right to self-determination and touches on the topic of what wealth itself means (i.e., having a good education is of value; whether it cost a lot of money or not).
I guess one should not take HN comments too personally or seriously...
There's hard work, and there's luck. Your genes, your environment and the randomness of the universe add to make up 100% of both of those things.
I don't think it's fair to say that the children (and their children, and their children) of someone who won the randomness / genetic / environmental lottery should be thousands of times better off than the children of someone who didn't.
In a fair and just nation/world we would try to reduce wherever possible the instances where your opportunities are dependent upon where, or to whom you are born.
That's something that can't be solved by an inheritance tax or sending children to boarding schools from the day they are born to let them grow up in a homogeneous environment.
All of those children will then feel left behind while their parents party away their last savings because the state is going to take it away anyway, right?
EDIT: I don't agree with the other opinions that reply to your comment: I think the arguments about autonomy and and self-determination hold just as much in personal finance.
And society has generally determined that your "ownership" comes with a fee to cover the societal costs that make it all possible. E.g., car and house property taxes to cover police depts, fire depts, etc. Without which see how long your precious possessions last.
Yes. However, too much equality also makes society too static, because no one is incentivized to innovate anymore. The problem, as always, is maintaining the right balance.
Sorry if this is a naive question, but is that really true? What's the evidence for believing that, much less treating it as fact?
The economic collapse of the Soviet Union, Warsaw Pact counties, Venezuela, North Korea.
By allowing a free market invasion in their Communist utopia, the Chinese Communist Party long ago abandoned their core ideology in favor of “pragmatic authoritarianism.” They get to stay in power, while reaping economic benefits impossible in a truly communist economy.
It is still true that most anybody can get rich in a capitalist economy if they’re some combination of smart, hard-working, or lucky. This causes lots of people to try.
What I've always seen suggested is that extremes of inequality are bad for society. That idea seems to be an implicit assumption behind this article.
(2) Most current politico-economic systems across the world have the feature that any given rich person has much more say in the political process than a poor person.
(3) It doesn't take much of a study of history to ascertain that, at least in the last century, rich people have used the additional power they have over the political process to make decisions that make them yet richer. Which then increases their political power even more. And the cycle repeats.
(4) There are at least two obvious solutions to (2) and (3), and which a lot of people subscribe to:
* Either, pass laws and pursue policies within the current system that make it very hard for anyone to become too rich or too poor relative to the average. This is what you will usually see a lot of regular people espousing.
* Or, redesign the politico-economic system so that rich people don't have a disproportionate influence on the political process. This is, perhaps, the motivation of some people working on crypto-currencies, even if they are misguided in their efforts.
The reason you find people who think "inequality is some intrinsic evil" is because many people believe that the second solution is not possible, i.e. it is human nature to exploit others and they will exploit in any unequal system and, hence, inequality is always an undesirable state.
If the system were working for most people and they felt they had good lives, I don't even think people would be particularly concerned about the concentration of power that comes with the concentration of wealth because they would see the system working for them.
Certainly we should talk in terms of ensuring there is an adequate floor, rather than in terms of bringing down the ceiling. What's the point of lowering that ceiling if the people at the bottom still can't see a doctor? And raising the floor is indeed what a lot of progressive proposals do aim for (Medicare for All, or Living Wage, or UBI, etc.). But providing that floor requires funding. Funding anything is always redistribution of some kind with the wealthier paying more because that's where the money is.
Economic stratification is effectively a stratification of people's degrees of influence over the natural world, so unchecked economic stratification necessarily means that there's a breaking point where a system which was previously democratic stops being so.
The Polya process is another thing that comes to mind. In that model, if you were picked in the past then you are more likely to be picked in the future. That's the classic competitive exclusion "rich get richer" at work.
But here's the equalizer: Every distribution of possible outcomes under the Polya process has an equal probability of happening.
That strikes me as very interesting. Basically, if you were to run history forwards from the same starting point again and again, in some of those iterations your life would turn out significanty better than others. So, there is equality for everyone in that sense, but on a case-by-case basis it's more of a better luck next time.
However, global inequality - especially comparing the economic classes across countries - is way down. For instance, Chinese standard of living is far higher today than in the past, as is the cost of their labor - relative to an American worker. In due time, many a Chinese worker will find themselves uncompetitive due to increased costs - much like the American worker before them.
What would put things back into balance is a massive global re-pricing of labor. This is politically unfavorable and those countries that maintain a reserve currency can put it off for a long time.
[1] https://ourworldindata.org/uploads/2018/07/Top-Incomes.png
Anyways, let’s hope for much more peaceful solutions.
The skill needed to keep it going even on the lowest level is so hight that you can't trick the people working at the lowest anymore?
That still leaves the poor people they do need
The problem seems that you can ease people into becoming too weak before they realize that they need to do something.
https://www.theguardian.com/world/2017/dec/15/extreme-povert...
Housing near work opportunities, education, health care, and childcare are many times more expensive today than in the past, adjusted for inflation and purchasing power parity [1].
Smartphones are not a luxury today by the very definition of what a luxury is (something scarce and hence expensive). Likewise, entertainment and other diversion options have become very cheap.
https://slatestarcodex.com/2017/02/09/considerations-on-cost...
Getting people out of poverty is good, but not if it's simply by throwing debt at them.
Given that all human populations that have reached a certain standard of living so far have ceased to grow beyond replacement levels, overpopulation is likely not going to be a long-term concern either.
It is therefore not a problem to overshoot for a while, assuming that we eventually reach a level of technology that lets us maintain our standard of living in a sustainable fashion.
There is no evidence that overpopulation is not long-term concern. Look at Africa, India, China
New technologies are not guaranteed. You can’t simultaneously give less and less time and resources to your children and ask them to be better than you. They will choose to continue your tactic until civilization collapse as future generations can't vote
To my awareness, there is no critical resource that is both exhaustible and non-substitutable. Waste is not a fundamental issue, it can be stockpiled and possibly recycled with future technology. Most of it can also simply be burned with relatively low environmental impact, at least in modern incinerators [1].
[1]https://en.wikipedia.org/wiki/Incineration#Arguments_for_inc...
> There is no evidence that overpopulation is not long-term concern. Look at Africa, India, China.
Yes, do look at these countries:
Chinese fertility today is well below replacement, despite giving up the disastrous "one child policy".
Indian fertility rates are at 2.2, very near replacement levels.
African fertility rates vary wildly with countries, but here as well you can see that fertility is inversely correlated with standard of living. Moreover, a low standard of living also implies relatively low resource usage.
> New technologies are not guaranteed.
New technology isn't strictly required, it just implies a lower standard of living.
> You can’t simultaneously give less and less time and resources to your children and ask them to be better than you.
Of course you can. The more pressure there is, the more likely it is that new solutions are developed.
Imagine if there wasn't any petrol left, we'd put a lot more effort into renewables. They wouldn't even need subsidies.
> They will choose to continue your tactic until civilization collapse as future generations can't vote
Well, sometimes civilizations do collapse. We may well enter an age of decline again. We also may launch a global thermonuclear war. I'm not saying a rosy future is guaranteed, I'm saying resource exhaustion and overpopulation are not as big a concern as people believe.